PROPOSAL 1. APPROVAL OF THE SUBADVISORY AGREEMENT
INTRODUCTION
The Board and Heritage propose that Osprey Partners Investment Management,
LLC ("Osprey") be appointed as an investment subadviser to the Fund. If this
appointment is approved by shareholders, Osprey would become the second
subadviser to the Fund. Eagle Asset Management, Inc. ("Eagle"), an affiliate of
Heritage, currently is the Fund's sole investment subadviser. Heritage and Eagle
are wholly owned subsidiaries of Raymond James Financial, Inc. ("RJF"). Eagle
has been an investment subadviser of the Fund since the Fund's inception
pursuant to a subadvisory agreement between Heritage and Eagle dated December
24, 1994 ("Eagle Agreement").
Effective January 1, 1999, the Fund's portfolio manager, Michael Chren,
resigned from Eagle. Mr. Chren had served as the Fund's portfolio manager since
July 1997. Although Eagle designated a replacement, Heritage and the Board
viewed Mr. Chren's departure as an appropriate opportunity to evaluate
additional investment management options. Heritage and the Board propose to
retain Osprey based on the performance history of its managing partners and
principals, Osprey's value-oriented investment style and its fee proposal.
Although Osprey is a relatively new registered investment adviser, all of its
managing partners and principals have a long track record with their previous
advisory firm.
If Osprey is approved as a subadviser, Heritage will have discretion to
allocate the assets of the Fund between Osprey and Eagle, subject to the
oversight of the Trustees. Heritage initially intends to allocate all of the
Fund's assets to Osprey. The proportion of assets allocated to each subadviser
will be reviewed periodically by Heritage. If shareholders approve Osprey's
appointment as subadviser, Osprey will provide substantially the same portfolio
management services as Eagle has provided and will receive a slightly lower fee
from Heritage than Eagle currently receives. Osprey will utilize an investment
committee made up of managing partners and principals of Osprey to manage the
Fund's investment portfolio.
At a meeting on February 26, 1999, the Board determined that it would be in
the best interests of the Fund and its shareholders to retain Osprey as an
additional investment subadviser to the Fund. In making this decision, the Board
considered, among other factors, the expertise that Osprey offers in providing
portfolio management services to other equity portfolios. The Board also
considered the experience of the persons comprising the investment committee,
Osprey's fee proposal, and the financial strength and quality of services
offered by Osprey.
Accordingly, the Board unanimously voted that (1) subject to shareholder
approval, Osprey be appointed as an additional investment subadviser to the
Fund, and (2) the proposed subadvisory agreement between Heritage and Osprey
("Osprey Agreement") be approved and submitted for shareholder approval. These
decisions included the unanimous approval of all Trustees who are not
"interested persons" of the Trust, Heritage or Osprey as that term is defined in
the Investment Company Act of 1940, as amended ("Independent Trustees").
DESCRIPTION OF THE OSPREY AGREEMENT
Under the Osprey Agreement, Osprey will manage the investment of Fund
assets allocated to it and will be responsible for placing all orders for the
purchase and sale of portfolio securities for which it is responsible, subject
to the supervision of the Trustees and Heritage.
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As compensation for Osprey's services and for expenses borne by Osprey
under the Osprey Agreement, Osprey will be paid a monthly subadvisory fee by
Heritage (not by the Trust) at an annual rate equal to 0.32% on the first $50
million of the Fund's average daily net assets allocated to Osprey by Heritage
and 0.30% for such amounts over $50 million. Heritage currently pays from its
advisory fee to Eagle a subadvisory fee equal to 50% of the fees payable to
Heritage without regard to any reduction in fees actually paid to Heritage as
result of voluntary fee waivers by Heritage. This fee is equivalent to .375% of
the Fund's daily net assets. However, for the fiscal year ending October 31,
1999, Eagle has agreed to bear a portion of the advisory fees waived by Heritage
with respect to those Fund assets under Eagle's management. During the Fund's
fiscal year ended October 31, 1998, Heritage paid Eagle $136,477 in subadvisory
fees. Accordingly, it is unclear whether Heritage would retain a slightly higher
portion of its advisory fee as a result of allocating 100% of the Fund's assets
to Osprey. Heritage has waived a portion of its fees for the Fund's fiscal year
ended October 31, 1998 and currently is waiving its fees. However, Eagle has
agreed to bear a portion of Heritage's fee waiver and Osprey has not.
The Osprey Agreement provides that Osprey will not be liable for any act or
omission in the course of, or connected with, rendering services under the
Osprey Agreement, except when such services are rendered in bad faith,
negligence or disregard of its duties under the Osprey Agreement. However,
Osprey will indemnify and hold harmless Heritage, the Trust, the Trustees,
officers or shareholders from any and all claims, losses, expenses, obligations
and liabilities (including reasonable attorneys fees) which arise or result from
Osprey's bad faith, negligence or disregard of its duties under the Osprey
Agreement.
If approved by shareholders, the Osprey Agreement would be executed
promptly by Heritage and Osprey and become effective on or about May 17, 1999.
Unless sooner terminated, it would remain in effect continuously for two years
following its effective date. Thereafter, it would continue automatically for
successive years, provided that it is specifically approved at least annually
(1) by a vote of a majority of the Independent Trustees and (2) by a majority of
all Trustees or by a vote of a majority of the outstanding Shares of the Fund.
The Trust may terminate the proposed Osprey Agreement by a vote of a majority of
the Independent Trustees or a majority of its outstanding voting securities on
60 days' written notice to Heritage and Osprey. Heritage may at any time
terminate the proposed Osprey Agreement upon 60 days' written notice to Osprey.
Osprey may at any time terminate that agreement upon 90 days' written notice to
Heritage. The Osprey Agreement automatically will terminate without penalty in
the event of its assignment or termination.
INFORMATION ABOUT OSPREY
Osprey is a limited liability company organized under the laws of New
Jersey on September 10, 1998. It also is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. All of Osprey's founders
were previously engaged in a variety of positions at their previous advisory
firm, Fox Asset Management, Inc. As of February 26, 1999, Osprey managed
approximately $2 billion of assets. Osprey serves as investment adviser to
corporations, endowments and foundations, municipalities and public agencies and
high net worth individuals. Osprey currently does not manage any portfolio of a
registered investment company that has a similar investment strategy of the
Fund.
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Osprey's principal business address is Shrewsbury Executive Center II, 1040
Broad Street, Shrewsbury, New Jersey 07702. The names, titles and principal
occupations of the current managing partners and executive officers of Osprey
are set forth in the following table. In addition, the table reflects those
persons who own beneficially or of record ten percent or more of the outstanding
voting securities of Osprey.
OWNERSHIP %
NAME OF OSPREY TITLE AND PRINCIPAL OCCUPATION
---- ----------- ------------------------------
Jerome D. Fischer............. 15.548% Managing Partner, Portfolio Manager for
Equity and Fixed Income Investment
Committees, and Director of Equity Research
for Osprey
John W. Liang................. 22.172% Managing Partner, Portfolio Manager for
Equity and Fixed Income Investment
Committees, and Chief Investment Officer
for Osprey
Paul A. Stach................. 21.275% Managing Partner, Portfolio Manager for
Equity and Fixed Income Investment
Committees, and Director of Fixed Income
Research for Osprey
Russell S. Tompkins........... 21.275% Managing Partner, Portfolio Manager for
Equity and Fixed Income Investment Committees
for Osprey, Chief Operating Officer
R. Van Whisnand............... 11.730% Managing Partner, Portfolio Manager for
Equity and Fixed Income Investment Committees
for Osprey
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The business address of each person listed above is Shrewsbury Executive
Center II, 1040 Broad Street, Shrewsbury, New Jersey 07702.
RECOMMENDATION OF THE BOARD OF TRUSTEES
The Trustees approved the appointment of Osprey as investment subadviser to
the Fund and recommend that shareholders approve the proposed Osprey Agreement.
In approving the Osprey Agreement, the Board analyzed the factors discussed
above and other factors that would affect positively and negatively the
provision of portfolio management services.
The Board recommends that Osprey be retained as an investment subadviser to
the Fund. If Proposal 1 is not approved by shareholders, Heritage will continue
as the Fund's investment adviser and investment discretion with respect to 100%
of the Fund's assets will continue to be allocated to Eagle as subadviser. The
Trustees would then consider whether any other arrangements of the provision of
investment advisory services are appropriate and in the best interests of the
Fund's shareholders.
VOTE REQUIRED
Approval of Proposal 1 requires the affirmative vote of the holders of the
lesser of (1) 67% or more of the Shares of the Fund present at the Meeting, if
the holders of more than 50% of the outstanding Fund Shares are present or
represented by proxy at the Meeting, or (2) more than 50% of the outstanding
Shares of the Fund entitled to vote at the Meeting.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1.
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